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No. of Recommendations: 5
Hello GGers:

I've been looking at PALM as a potential GG and RB play. So far I think it meets most of the RB criteria save for the RS>90, and I believe that will be corrected once 3COM divests itself of PALM ownership.

I went through PALM RB criteria quickly:
1. The top dog and first-mover in an important, emerging industry...

PALM is the undisputed leader in the PDA market with the dominant brand of handheld device. With the advent of wireless its easy to use OS becomes a formidable force in the space.

2. Sustainable advantage gained through business momentum, patents, visionary leadership, and/or inept competition...

As with any OS, Palm has tons of patents and trade secrets to protect its turf. It also has business momentum in terms of the adoption of its products. Windows CE was an inferior product compared to the elegant Palm OS and has remained a second tier competitor (although MSFT is trying again with the PocketPC).

3. Excellent past share appreciation, measured by a relative strength of 90 or higher...

Here's where PALM fails, its stock price is below it's IPO offering price of $38. This may have more to do with the stake that is held by its parent 3COM than by anything else. Nevetheless I believe that there was overenthusiasm during the IPO and the stock was offered at an outrageous price that couldn't have been maintained at those levels. PALM currently has a market cap of $15-17 Billion while its parent COMS which owns about 90% of it is valued at $17 Billion.

4. Good management and smart backing...

PALM has a decent management and excellent backing from 3COM.

5. The greater the consumer brand, the better...

Palm has a huge consumer brand. Simply Palm is a great campaign.

6. A significant constituent of the financial media is recently on record for calling it overvalued...

With a P/E of 440 it is definitely overvalued by traditional metrics. After its IPO many people in the financial media were calling it overvalued based on its valuation relative to COMS.

Here's another RB report on PALM by AnAspiring Fool:
http://boards.fool.com/Message.asp?id=1030064000673000

Now let's look at the GG criteria:

1. Discontinuous innovation

The PALM OS is a very elegant operating system for handhelds, it commands about 70% of the market for PDAs. In the same way as Windows and the MacOs were DI in the PC sector so is the PALM OS a DI in the handheld market.

2. Proprietary open architecture

The PALM OS is open and proprietary, their hardware is also open and proprietary. They have lciensed their design to Handspring (HAND) and I believe there are more licensees coming. PALM owns the rights to their OS and will receive payments no matter who makes their devices. They also own the Grafitti software for handwriting recognition.

3. High barriers to entry

MSFT the Gorilla is making its second attempt to enter this market. Windows CE was not much of a threat to PALM's dominance. PALM owns patents on their hardware and their software. PALM devices engender loyalty, once you invest the time to put together your address book and other data in a PALM device you really don't want to switch over to another platform.

4. High switching costs

Again, these devices engender loyalty. Most people I know who own a Palm device would never switch to a pocket-pc. The investment in time to learn and configure a new device such as a PocketPC device is more than most people are willing to tolerate.

5. Strong value chain formation

PALM has quite a few developers, just check palmgear.com or palm.com for a list. Handspring can be seen as a young DELL or Compaq or Gateway. PALM also has partnerships with cell phone handset makers such as NOK for the use of their software in smartphones (I'm pretty sure that NOK and AOL are investors in PALM).

6. Tornado market exists or foreseeable

Revenues grew 100% yoy in this quarter. We are witnessing a tornado in the PDA market, and with smartphones the tornado will get stronger.

Here's an excerpt from PALM's earning's announcement on 28 JUN 2000:
http://biz.yahoo.com/bw/000628/ca_palm_co.html

Palm, Inc. (Nasdaq:PALM) today reported record revenues of $350.2 million for the fourth quarter ended June 2, up 101 percent from year-ago revenues of $174.3 million and up 29 percent from revenues of $272.3 million in the third quarter of fiscal 2000.
-snip-
``The mobile wireless Internet has emerged as an exciting growth opportunity for Palm, and our strategy to address it has gained major traction across each of our businesses,' Yankowski said. ``Our penetration into new markets such as business and education and new channels and our global expansion continues. The vibrancy of the Palm Economy is evident by the IPO of Handspring, the IPO filings of AvantGo and OmniSky, and the rapidly growing number of Palm OS developers, which now number more than 82,000.'


Hope this helps answer some of the questions out there. Disclaimer: I own no shares of PALM, but I do own a Green Handspring Visor Deluxe (I call it Erick's Dragon).

-xerohype

P.S. I added MikeBuckley and tekboy to my Favorite Fools list. They add a great deal to the great discussions we have here.

P.P.S. I've made some minor changes to the FAQ, but I'll hold off in putting out a new version until after the RM seminar ends.


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